Dear Joe,
Why have you betrayed me so cruelly?
You came to me in September with promises of fatherly love and affection. You described me as your pillar and that, after mining’s bloom had faded, I would be your everlasting rose. You said you needed me and that, without me, you would forever be insecure.
But now that my fate lays in your hands, you act swiftly to hasten the courtship of WCB by Saputo whilst locking me in the cellar, dressed in rags. I implore you to at least allow me to attend the ball so that I may win the hand of my beloved.
Your faithful Milkmaid
Okay, I never really fell for you, Joe, but here it is:
- Before the election, you described agriculture as one of the five pillars of the economy and said that food security was important. I’ll hold you to that.
- For Australia to have a dairy sector, it must be able to compete with the international goliaths. That means we need a big processor with scale.
- Australia’s dairy farmers are sticking together and want to grow so we can be more resilient. We absolutely have to because we don’t have the subsidies, FTAs, cheap labour or government support enjoyed by most of our competitors.
- Our 100% Australian farmer-owned cooperative exists to maximise farm gate prices and consolidation rather than competition is what’s needed. We are prepared to step up to the plate and invest in our futures.
- You gave the giant, privately-owned, foreign Saputo a huge leg-up with swift clearance, declaring Australia “open for business” with a grin on your face.
- Don’t hide behind the ACCC or the slow-as-a-snail tribunal. Where there’s a political will, there’s a way. Your Kiwi counterparts knew that doesn’t make sense and cast their equivalent aside to allow the much-admired Fonterra to take shape.
To pin us to such a protracted process while ushering though our foreign competitor is to drive a stake through the heart of the co-op’s bid.
You surely understand the irony of thwarting MG’s bid based on competition policy when it is Australian farmers themselves desperate to become more competitive who are driving this bid and, in turn, are being rendered non-competitive in this fight to keep WCB Australian-owned by you, our own government! - You are the biggest impediment to Australian farming families taking a greater stake in our own futures by keeping WCB Australian owned.
- If you insist on holding us back, you will be remembered as the man who sold Australia’s dairy farmers down the river. And for what? The love of Lino?
Joe, it’s time you stepped out of the way and gave us a fair go.
The Milk Maid Marian 
Marian
I hear so much about how WCB would give MG a global footprint or critical mass or whatever the right buzz phrase is, but the figures don’t stack up.
MG revenue: $2.4 billion
WCB revenue: $0.5 billion
MG milk intake: 3 billion litres
WCB milk intake: 0.9 billion litres
So WCB adds about 20% to MG’s revenue, hardly earth shattering and the sort of numbers that MG could achieve through organic growth.
If the Co-op model is truly better then MG should have no problems in poaching milk suppliers from Saputo after they buy it for such an inflated price.
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The problem is not the raw figures, but the combined figures. ie. having the milk flow to fill a bigger plant means cheaper per unit production. The facts and figures do add up. New machinery to process 4 billion litres means lower cost manufacturing and hence better potential returns to farmers. Investment in plant and equipment to bring our manufacturing capability in to the current century is one of the big factors here. MG is prepared (and has already started) to invest in this space to increase efficiency which = less cost to process each litre of milk. Then there are admin overheads… some may suggest that this is the biggest line item the WCB board is protecting in their love affair with Saputo. There are also claims around logistics savings. There are claims of first round synergies worth in the order of $200 million pa across the industry and then more in the longer term. We don’t sit on the boards and are not privy to their calculations.
What is clear, however, is that if Saputo wins, then we don’t get any rationalisation or synergies or economies of scale to improve the bottom line of our export driven industry. About 50% of the milk is already controlled by foreign companies, some of the biggest in the world operate here. They don’t lead on price, have found the environment tough, have tried to push milk price down and haven’t made any meaningful capital investment. If they had, MG would not have been able to write a 10 year fresh milk supply contract, sign up to $1/l home brand and still make money by building new plants.
Another point here is that there are only 3 Australian owned companies of any scale left. If we don’t use this opportunity to rationalise what is left in Australian control, we will lose control of the lot. That does not bode well for the future of the industry based on what we’ve seen go before.
Tyran Jones
UDV
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Why would MG build a new plant for the western districts anyway, WCB and their Koroit plant from what I understand already process different product mixes. Also I believe their is no way all suppliers will stick with MG if they win. So Fonterra , UDP and other smaller Mebourne companies will get more milkif they require it.
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Tyran
Thanks for your reply. I guess time will tell if Saputo can introduce efficiencies (if they win) that will reduce their costs. Given the price they will have to pay, my guess is they will be making some savage cuts, just to break even. But I take your point that this is different to completely closing a plant and running production is fewer but larger plants.
From a consumer’s perspective, I have no problem with foreign companies operating in Australia; in fact, the more the merrier. As long as they look after Australian farmers, I’m happy to buy their products.
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Hi Ian,
It is actually really difficult for MG to grow organically. Australian farmers have been producing less milk over time in the face of incredibly tough conditions and the processing sector is very fragmented.
The only way to grow quickly is to acquire the existing fragments and group them together into something really efficient.
What MG would be buying is the stainless steel, the smarts (it’s got a desirable cheese plant and lactoferrin facility), customer base and, hopefully, lots of the suppliers would stay on. There are a lot of synergies there and market access that would help MG.
On the other hand, I agree wholeheartedly with you that MG must work harder to communicate with farmers who don’t currently supply it but have a spirit of co-operation.
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Marian, I’d find it really interesting to find out why farmers don’t want to go thru a co-op. Is it ideological? Is there some sort of divide between family and corporate run farms? Special deals for some farmers? Apathy?
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IanA We have never supplied MG and probably never will as we are continually paid more by other processors. I just don’t understand how MG keeps saying that they pay all of their profits back to the farmers yet are still the lowest paying. Where are the companies that are paying more getting their money from? They are not all running on losses.
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I think you’ve got to the heart of the matter, DB.
MG has plenty of opportunities to lift its game and push that benchmark price higher. It’s refreshing to see it seizing opportunities to become more efficient and create more highly valued products.
Personally, I supply the co-op because I know other processors base their prices on MG’s price plus the minimum needed to attract milk.
I’m not silly. I know that, like you, I could get more for our milk simply by redirecting it.
But if we all did that tomorrow, as Tim Mazzarol notes, everyone’s milk price would fall tomorrow.
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